Technical Report

Risk Information

The risks that could influence the GS Yuasa Group's operating results, stock prices, financial condition, and so on are as follows. Forward-looking statements in this document are based on risks identified as of June 29, 2017.

Economic Conditions

Demand for the GS Yuasa Group' s products is influenced by economic conditions in the markets where products are sold. Therefore, in the Group' s main markets, which include Japan, the rest of Asia, North America, and Europe, economic setbacks and accompanying demand contractions, could adversely affect the Group' s earnings and financial standing.

Intensification of Price Competition

The GS Yuasa Group is exposed to intense price competition in each of the markets where it conducts business, and setting prices at advantageous levels has become difficult. Particularly in the automotive battery field (replacement), we not only face the same competitors as in Japan but also must deal with lowcost products supplied by overseas companies, which make competition more intense. The GS Yuasa Group is cutting costs and implementing measures to strengthen marketing power, but it may not be easy to maintain and expand market share and secure profitability in the future.

Foreign Exchange Rate Fluctuations

The GS Yuasa Group conducts business in Japan, the rest of Asia, North America, and Europe. Financial statement items that are denominated in local currencies outside of Japan, such as sales, expenses, and assets, are converted into yen for consolidated financial statements can be drafted. The yen value of these amounts can change depending on the exchange rate, even if the amounts have not changed in local currencies. When local currencies appreciate in areas where the Group carries out overseas production, manufacturing and procurement costs can rise in these areas. The Group conducts forex-hedged transactions in an effort to hold the ill effects of short-term foreign exchange rate fluctuations to a minimum, but medium- to long-term currency fluctuations may impede the Group' s ability to procure, manufacture, distribute, and sell goods according to plan. Therefore, it is possible for foreign exchange rate fluctuations to influence the Group' s earnings and financial standing.

Risks Related to International Activities and Overseas Expansion

The GS Yuasa Group manufactures and markets products in Japan, the rest of Asia, North America, Europe, and elsewhere. The following risks are intrinsic to these markets, and they could affect the Group' s earnings and financial standing.

Unforeseen changes to laws or regulations

Difficulty in hiring and keeping human resources

The possibility that inadequate technology infrastructure will affect the Group' s manufacturing and other activities, or lower the reputation of GS Yuasa products among customers

Social disturbances caused by terrorism or war

Risks Related to M&A

The GS Yuasa Group considers M&A to be a useful and effective tool for business expansion. When the Group carries out M&A, the transaction is considered from a range of viewpoints, including the target company' s financial standing and potential synergy with the Group' s businesses. Due to drastic changes in the business environment or other factors, however, an acquired business might not perform as planned. If invested funds cannot be recovered or a loss on goodwill is recorded, the GS Yuasa Group' s earnings and financial standing could be affected.

Risks Related to Raw Material Markets Fluctuations

Lead is a key material used in lead-acid batteries, the GS Yuasa Group' s main product. However, changes in the market price of lead cannot be reflected immediately in our product prices, so the Group' s earnings and financial standing could be affected.

The sales volume of the GS Yuasa Group' s main product, automotive batteries (replacement) is affected by seasonal factors, particularly the weather. For example, cool summers and warm winters result in a narrower temperature range, which is favorable for maintaining battery performance, so replacement demand and thus sales volume declines under these conditions. These seasonal factors cannot be accurately forecast, making it difficult to take adequate countermeasures in advance, so seasonal factors could affect the Group' s earnings and financial standing.

Lawsuits and Other Legal Proceedings

In carrying out business, the GS Yuasa Group may be sued by suppliers or third parties, and there is a risk that regulatory authorities could take legal action against the Group.

Environmental Regulations

In China, the central government shows signs of strengthening environmental regulations on lead-acid battery manufacturers and lead smelters. Some manufacturing activities at GS Yuasa Group companies could be affected.